Southeast Asia (SEA) has been creating waves as an attractive market for global businesses. The SEA opportunity, with its unique blend of cultures and a dynamic market, is no longer a sideline for global companies; it has now become a core part of their growth strategy. The shift from opportunistic to strategic, thoughtful involvement in the region marks the dawn of SEA expansion 2.0 – a new era characterized by more diverse and competitive routes into this burgeoning market.

Evolution from Strategic vs. Competitive Shifts

This evolution began opportunistically with entrepreneurs setting up new ventures in SEA and high-net-worth individuals (HNWIs) establishing family offices in Singapore. Global companies such as Alibaba, Tencent, Meta, and Google made specific strategic investments in the region. This initial involvement, however, is giving way to a more competitive and infrastructure-oriented expansion.

Global companies are setting up headquarters in Singapore, R&D centres in Vietnam, while major global funds are opening offices in Singapore. Brands like TikTok, Shein, and Netflix are broadening their presence across SEA, marking a significant transformation from opportunistic to competitive investment.

Navigating the Routes into SEA

(1) Talent (Deep Tech): Foreign entrepreneurial talent has always been flocking to Southeast Asia for greener pastures and new opportunities (listen to the stories of Tonik’s Greg Krasnov, WIZ.AI’s Jennifer Zhang, Konvy’s Qinggui Huang), but what is interesting today is seeing this especially in deep tech. A case in point is the founders of Marvell chip launching a US$2B chip foundry in Singapore. Even though infrastructure to support deep tech ventures outside Singapore is still developing, this inflow of talent offers significant hiring opportunities.

(2) Capital: Capital has continued to flock to Southeast Asia, especially through Singapore, and we’ve documented this inflow of wealth especially coming from China (though China isn’t the biggest FDI contributor). There’s been a dramatic increase in capital inflow, with Inward Direct Investment Flows into Singapore soaring from US$85Bn in 2015 to US$195Bn in 2022. Despite the inherent macroeconomic headwinds making for riskier deployment (especially into technology companies), this surge has attracted a growing number of strategics and family office investors.

(3) Operations: Multinational companies, especially in media and commerce, have become more aggressive with their expansion into Southeast Asia, recognizing the demographic influence the region has in these sectors and the link between media and ecommerce. The decision to buy, build, or partner poses a significant challenge for inflows in this region. Brands like TikTok and Shein are expanding their presence, prompting local startups to bolster their competitive moat on pricing and product.

(4) Asia HQ: Singapore has long been the favoured destination for setting up regional HQs, with over 7000 multinational corporations establishing their headquarters in the last decade. Today, however, we are seeing even greater movements not just into the city state, but even the fruits of years of negotiations coming to a head in other countries as in the case of Netflix. While there are tax and regulatory challenges, take for example Vietnam’s stringent regulations on social media companies, this shift has also led to an intensifying competition for talent.

(5) Supply Chains and R&D: Interest in investing R&D and supply chains in the region is also on the rise as a result of the pandemic forcing global companies to reduce dependencies on singular hubs for manufacturing and distribution. For example, Siemens announcing a new 200 million euro plant for its industrial automation division in Singapore. The talent pools in SEA are still developing, yet these inflows present incentives for deep tech startups to emerge beyond Singapore.

Action Points for Local Entrepreneurs

The diversification from China due to geopolitical fragmentation and operational challenges has led to SEA becoming an increasingly appealing proposition for global companies. However, the increased interest also signifies a more competitive landscape. To navigate these challenges and leverage the opportunities, local entrepreneurs should consider the following action points:

1. Competitive Edge: Utilize your in-depth understanding of the local market to offer unique value propositions that global companies might not have. Competition is not just on price or product, but also operations, culture, and talent.

2.Talent Acquisition and Retention: Leverage the influx of talent into the region, especially for C-level and founding team hires. Adopt strategies to attract, develop, and retain top talent from both local and international pools.

3. Strategic Fundraising: There are more sources of funds, but tighter deployment. Consider strategic partnerships with global firms setting up shop in the region. This can provide access to new markets, resources, and technology.

4. Regulatory Compliance: Stay abreast of local and international regulations, ensuring your business is compliant to avoid potential hurdles. Local regulations may evolve more quickly thanks to the movements of global players.

Despite the challenges, the SEA region presents a unique opportunity for growth and diversification for companies worldwide. The vibrant and diverse region continues to provide a dynamic and exciting tech landscape that is unrivalled, offering numerous possibilities for businesses ready to embrace the SEA expansion 2.0 era.

More insights in our conversation with Reuters Asia Technology correspondent Fanny Potkin: